06-19-2017: December Cotton: Profitable Last Year, Over-Planted This Year

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Point & Figure

Internal Progrm
Third System

Historic Range

Random Chart
Calend Spread

Level Table
Other Factors

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As is so often the case in grain and fiber crops, when there is a "good year" for prices in a particular commodity or crop, farmers are then attracted to use available acreage that could be used for other crops to select that more profitable crop. The result, as is the case now, is over-production and a collapse in the previously favorable prices.

Intermarket Analysis

We fed Cotton, Soybeans, and Corn into a neural network to get the following result:

Parabolic Chart

December Cotton:

Parabolic Chart

Nirvana Chart

December Cotton:

Initial Chart

News Analysis

Increasing deliverable stocks, a surge higher in the U .S. Dollar, weakness in both stock and gold markets contributed to cotton futures losses. The market is considered in oversold status by some analysts but Commitment of Traders data for large speculators shows the market in an overbought condition. There has been recent aggressive long liquidation selling. ICE deliverable stocks increased to 468,041 bales from 458,935 bales in the last day or so. Big crops reported by the USDA in the U.S., Pakistan, and India are pressuring futures. Export sales are at 69,400 bales for the current marketing year and 197,600 for the next marketing year. Culumative cotton sales as of June 8th are at 103.4% of the USDA forecast for 2016/17 marketing year which is the current one. This compares to a fived-year average of 104.8%. A jump in grain prices failed to attract a similar bounce in cotton during the past week. The global supply is burdensome.

Part of the problem is increased plantings in response to better prices that reigned for much of 2017. U.S. farmers are expected by the USDA to raise output to a 10-year high of 19.2 million bales this year. Other major growers in Chiona, Pakistan, and India seen excellent weather and adequate moisture for bumper crops there. 66% of the U.S. crop is in "good to excellent" condition. Most commentators see cotton in bearish conditions, and these include Texas A&M University, Rabobank, and Commonwealth Bank of Australia.

A lot of cotton is grown in Texas. An analyst there thinks one should "seel while he can." He urged farmers to consider forward contracting. A cut to U.S. export hopes based upon less global mport demand and improving crop forecasts in many importing countries led to an idea of U.S. cotton imports hitting a 0-year high of 5.5 million bales at the close of 2017-18, starting in August. Increasing ending stocks and stocks-to-use ratio is asasociated typically with price weakness.

Reduced import demand from Mexico for U.S. cotton is seen as well, as Mexico's internal production capacity improves.

"Managed money" makes up 40% of the total cotton open interest.

There was a 21% hike to 12.2 million acres in U.S. cotton sowings this year. Cotton appeared to offer better returns than competing crops like corn, rice, soybeans, and wheat. India's planted area will increase by 8% year on year in the 2017-18 season according to some estimates.

Dicamba is a weed-killer that may face a total ban on its use in cotton fields in Arkansas. At least 50 complaints there of dicamba drift has caused damage to other crops;. Northern MIssouri is also affected.

Point & Figure Chart

 89.0I                                                                  T  6/16
     I ICE - Dec-17 Cotton #2, 50000 lbs, c/lb.    Cm.=0.06  Lim.= 3.3
     I    X
     IX   XO
     IXO  XOXO                              X
     IXO  XOXO                              XO
     IXO  XO O                              XO
     IXOX X  OX                             XO
     I OXOX  OXO                            XO
     I O OX  OXO                            XO
     I   OX  O O                      X   X XO
     I   OX    O                      XO  XOXO
     I   OX    O                      XO  XO O
     I   OX    O                      XO  X  O
     I   OX    O                      XO  X  O
     I   OX    O                      XOX X  O
     I         O                      XOXOX
     I         O                      XOXOX
     I         O                      XOXO
     I         OX     X   X X         XO
     I         OXO    XOXOXOXOXO    XOX
     I         OXOX   XOXOXO OXO    XOX
     I         OXOXO  XOXO   OXOX X XOX
     I         O OXOX XOX    O OXOXOXO
     I             OXOX        O O OX
     I             OXOX            OX
     I             O O             OX
     I                             O
         11       111           111       1
The above chart is giving a conventional sell signal.

Cyclical and Seasonal Factors

We are headed toward a cyclical high and are in a seasonal down period.

Cyclicals Cyclicals Seasonals

Internal Program

Our best-performing internal program is "%R". It is giving a buy signal.

Internal Printout 1 Internal Printout 2

Results of "%R" for Cotton (blue lines = successful trades, red, unsuccessful): (Always in the market.)


Third System Confirmation

Our third system has triggered a sell signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)

Third System


The point value is $500. Initial margin on a single contract is $ 3,036. We do not recommend you attempt to trade cotton options.

Historic Range

If we eliminate the "blip" in 2011, then scale traders are not a factor in this price range.

Historical Chart

Commitment of Traders

Commitment 1

In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Commercials with the best track record are getting increasingly-long.

Commitment 2

Interpretation of a Different Site Below (Their trader categories vary from ours):

Commitment 3

Volatility / Probable Range

FB 1 FB 2

The average volatility shown below suggests that a change in major trend to down has begun from the last volatility low point.

Range/Volatilitiy Chart

Possible Future Prices

Random Chart

Option Recommendation

At current cotton option prices, there appears to be no potentially profitable cotton option trades. The ICE Exchange is terrible, giving bad quotes and bad deals for traders.
If you must trade options on ICE futures, orders should reflect much higher or lower spreads between your bids, asks, and last price shown than what the ICE Exchange offers in its lousy quotes.

o 1 o 2 o 3 0 4 o 5

Calendar Spread

What the Dec. - May calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down in the long run. The best time to enter or leave the above spread is when it is at -0.60 or narrower selling the far as prices are falling and then buying the near, and exiting or entering when it is at +0.80 or wider buying the far as prices are rising and then selling the near. At this time, we appear to be close to the buy the near, sell the far point. This disagrees with our ultimate conclusion in this article.

Level Table:

Level Table

The path of least resistance is down.
 85.0|                                                                  R  6/16
 ICE - Dec-17 Cotton #2, 50000 lbs, c/lb.    Cm.=0.06  Lim.= 3.3
 60.0|-A-B-C-D-E-F-G-H-J-K-L-M-N-O-P-Q-R-S-T-U-V-W-X-Y-Z----|----|-- TPO=-0.600
                       1 1 1 1 1 1                                    
       6 7 7 8 8 8 9 9 0 0 1 1 2 2 1 1 2 2 3 3 4 4 5 5 6 6           6
       2 0 1 0 1 2 1 2 1 2 0 2 0 2 0 2 0 2 0 2 0 1 0 1 0 1           1
       0 1 8 1 5 9 3 7 1 5 8 2 7 1 6 3 6 1 7 1 4 9 3 7 1 5           6

Other Factors

Multiple Chart Indicators Summary
Multiple Chart Indicators Summary

Here's an intraday chart for a previous day ( 6/16 ).

Intraday Chart

                 Risk Versus Opportunity Report

                     CTZ7    December Cotton

                      High Price:  71.25
                   Current Price:  69.36
                       Low Price:  65.53

                            Risk: -0.055
                     Opportunity: -0.112

                    (O/R) Ratio =  2.026

Overall Recommendation

Decision Weighting Factors
FactorsWeighted Points
Inter-Market Analysis + 1
Parabolic Chart - 1
Nirvana Chart + 1
News - 1
Point & Figure - 1
Cyclicals + 1
Seasonals - 1
Internal System 1 + 1
Internal System 2 0
Third System - 1
Historic Range 0
Commitment of Traders + 1
Range/Volatility - 1
Level Table - 1
Other Factors - 1
Total - 2
Place 4 December Cotton on a Sell Watch with stoploss @ +2.57 above the get-in point when recent price is represented as "69.36".